06 July 2010

Horizontal or vertical?

During coaching or mentoring sessions with recruitment company owners and managers, I am often asked for my views on growth strategies. Clients are interested to know whether it is better to grow horizontally (ie add a new discipline or niche) or vertically (ie build greater depth in their current discipline or niche).


For me, the response is a no brainer.

Vertical growth should be a priority before horizontal growth. There are a couple of very good reasons for this.

Firstly, I don't believe you have a business in a niche until you have a niche generating $1 million in net fees (ie perm billings and/or net temp or contractor margin) and at least three consultants.

This niche would typically comprise a senior consultant billing $500k+ pa, a 1-2 year experience recruiter billing $250k-$300k and a rookie in the $100k-$200k billing range.

Until you have this level of net fees and staff coverage , you really don't have a sustainable business because if, with one or two recruiters and approximately ½ million in net fees, one recruiter leaves (and takes a fair chunk of their billings with them) then you are in the position of having to re-start the niche almost from scratch.

Once you get to 3 recruiters and $1 million net fees you can, most likely, withstand the loss of any of the recruiters in that team without going backward for a couple of years.

Secondly, by building depth, you are making better use of existing resources, especially your candidate database.

A new recruiter joining a team in an existing niche has immediate access to a database of qualified and current candidates. This means they can get to work immediately on attempting to fill marginal jobs (which the other consultants in the team are paying scant attention to) and also reverse-marketing very good candidates to existing clients.

If you grow horizontally before building vertical depth, you have to invest more money in salaries (starting a new niche requires a more experienced, hence expensive recruiter) and advertising to build a database of candidates.

Typically it will take longer to gain a return on this investment as all jobs and candidates need to be generated from the ground up in a niche that your company doesn't have any existing record of success in.

The tales of woe that I hear directly and indirectly from recruitment company owners, generally involve them being seduced by an opportunistic hire (as distinct from a strategic hire) who most frequently presents as a ‘high performer'. This type of recruiter promises to build a new horizontal niche for the stars-in-their-eyes business owner. Excited by this ‘great opportunity', existing business plans are either ignored or immediately updated to incorporate this new gun hire.

Mostly this ends in tears. The ‘gun hire' departs within the first 12 months, having delivered nothing like the fee income they promised or the owner hoped and in the process, blaming the business owner for not having ‘the right brand' or not having provided the budget to undertake a significant marketing investment.

This sort of experience, typically, puts a big dent in the owner's ego and bank balance. Most dangerous of all, in an attempt to make the new niche profitable, the owner takes their eye off the ball in their existing and profitable niche(s) and becomes distant from the key consultants and clients. Feeling unloved and taken for granted, these key consultants and clients are at huge risk of defecting.

At the beginning of my recruitment career, I was employed by Hays in London and I saw first-hand how powerful and profitable it was to build depth in a niche. All jobs were fill-able and all candidates were place-able. I was joining a team and a company, with significant momentum in a niche (accounting).

As a new consultant, I quickly built my skills and confidence because there was momentum in the team which had significant depth in a niche. I had jobs to work on and candidates to place immediately. The fast-flowing river of jobs and candidates carried me along to (relative) success, beyond what my modest skills probably deserved.

Momentum is an often under-rated or unrecognised benefit of building vertical strength. Momentum quickly builds confidence and optimism in recruiters (‘I can't wait to get to the office tomorrow to get on the phone'). Confidence and optimism is contagious. It builds team spirit (‘my colleagues are helping me win') and a sense of purpose (‘I love what I do').

There will come a time for a recruitment owner when the step into horizontal growth will be the right next step for the growth of the business. If this step is undertaken before vertical depth has been added and bedded down then it's a move that carries both a huge risk and a problematic return.

2 comments:

  1. After the first 3 paragraphs I was going to strongly disagree with your article but haved instead endorsed the comments. Within the context of building a sustainable team, your comments are great - the industry has many unsustainable, half-started, opportunistic activities wasting business owners time and money.

    ReplyDelete
  2. Thanks for your comments Rod. A reader pointed out I had mixed the definitions in the opening paragraph (which I have now changed) of the HTML newsletter version of this post. No doubt this had influenced your original reaction to the article.

    ReplyDelete